TIME EUROPE
June 12, 2000 VOL. 155 NO. 23
Special Report
Venture Playground
A new spirit of entrepreneurship has created a thriving culture for Internet start-ups and fueled the country's robust growth. How the new economy is changing the way the French do business — and reshaping the nation itself
By ROMESH RATNESAR Paris
The toughest thing to find at the offices of the French Internet consulting firm Fi System is a place to sit. The company occupies five floors of a Paris building and the hallways clamor with the sounds of hammers and buzzsaws taking more walls down. Employees scurry from office to office, laptops in hand, looking for any unoccupied table space they can claim. Often they settle for the company's smoky cafeteria, which crams in a table-soccer console, a pinball machine and a wall-to-wall mural of tropical beach scenes. "We think that if you want to rise as fast as possible, you don't have to choose between order and chaos," explains Thierry Thévenet, the company's founder and CEO. "We think you can move between the two."
So far, it's working. Fi System is the kind of company that has become indispensable to the new economy: a Web agency that constructs websites and develops Internet business strategies for bricks-and-mortar companies and dot com start-ups. Fi System has gone from 200 employees to 800 in the past year and aims to hire at least another 1,000 people in 15 countries by 2001. The eight-year-old company has already spun off its own mobile-Internet start-up, Ubicco — which is gunning to float on the NASDAQ next year — and opened a new venture-capital fund. Most astonishing of all has been Fi System's stock performance: after the company's IPO in October 1998, the share price rocketed 1,500% last year, which made it the best-performing stock on the French bourse. That lent the company's executives a quiet confidence that even the high-tech market's recent tailspin did not puncture. "We are very ambitious," Thévenet says, as he rearranges cups on a table at a local café. "We often say to ourselves, 'In two years time, we think we will be there'" — he points to the cup at the far edge of the table — "but we always end up doing two times better than that. It has been a dream."
Not so long ago, the idea that France could produce a billion-dollar Web company would indeed have been the stuff of fantasy. But thanks to a booming economy and a flourishing investment sector, more and more ambitious French entrepreneurs are quitting their jobs, or returning from stints overseas — or leaving school — to chase ipo dreams. And why not? Before April's market sell-off, the value of the Nouveau Marché, France's high-tech stock exchange, had increased by more than 400% in 12 months. Venture-capital funding in French start-ups tripled last year, the biggest rate of increase in the world.
France now has its own burgeoning start-up culture, with scores of techies moving into Paris office buildings converted into incubators for new dot coms. Today, a French e-entrepreneur "has 20 venture capitalists lining up to talk to him," says Laurent Massa, who launched xoom.com in the U.S. and now invests in European start-ups. "Five years ago you were lucky to get a meeting with one." Didier Benchimol, 40, a former Netscape executive and the ceo of imediation, a two-year-old company with offices in Paris and Palo Alto, says he sees dozens of "young guys meeting with me, pitching their business plans. It's so much like the scene in Silicon Valley, it's unbelievable."
Forget the Left Bank: "If you want to be fashionable in France now," says Xavier Lorphelin, 28, the CEO of Kangaroo Village, which invests in start-ups and gives them office space, "you have to work in a startup." Adds Nicolas Peltier, 28, who founded an e-commerce site called Anatole.fr.: "There's an optimism here — students are very positive about the future. And they want to take a bet on it by starting their own company."
Many of France's stuffier businesses, too, have soaked up entrepreneurial energy, adopting aggressive Internet strategies and weaving technology into the fabric of corporate culture. Says Claude Bébéar, the head of Axa Group, one of the world's largest insurance firms: "When young people come to me and say they're interested in the new economy, I say, 'That's it! Perfect! Take the chance.'" Partly to attract and retain some of those employees, Axa has launched Web services of its own. "We have 250 start-ups within the company," Bébéar says. "Everyone is convinced that it is necessary to completely change the way we do business." At Valeo, the $2 billion Paris-based car-parts manufacturer, the Internet has slashed procurement costs and improved internal communication. "We like it immensely," gushes CEO Noël Goutard. "There are links between people here that would never have existed without the Net. We are moving from a company based on an organizational chart to one based on knowledge and expertise."
Those currents have brought a new dynamism to French businesses, and it is turning them into global forces. France Telecom, once a lumbering state monopoly, has recast itself as a player in the European Internet and wireless spaces: with its purchase this year of Germany's low-cost phone provider MobilCom AG, FT now owns affiliates in the nine biggest European markets. Renault, France's second-biggest car company, turned in its best sales year ever in 1999; in the past year it has also acquired Japan's Nissan and South Korea's Samsung Motors.
Perhaps no French company embodies the new spirit better than Vivendi, which made its name as the world's leading water- services company and is now one of Europe's sexiest — and most profitable — new-media conglomerates. "The new generation of French business leaders is much more international and concerned with the new economy," says Vivendi's 43-year-old CEO, Jean-Marie Messier. "France had an aborted revolution in 1968. I do think French business and management are having their own May '68 revolution right now."
No one believes the barricades have been ripped down altogether. "The government would like us to believe that the same thing will happen in France, in terms of sustainable long-term growth, that happened in the U.S.," says Jean François Mercier, the chief French economist at Salomon Smith Barney. "But the jury is still out." France has been slow to invest in technology and research and development and the country suffers from chronic brain drain: 20% of graduates from the Grandes Ecoles leave to work abroad. Marla Ginsburg, a U.S. businesswoman who teaches a graduate-level class on entrepreneurship at the Sorbonne, says that interest in starting Internet companies has soared in the last year — "but many of the best of my students are leaving this country." France's crippling social tax burden makes setting up shop costly for new entrepreneurs, and dissuades those who have already prospered — who are also the ones most likely to invest in new start-ups — from staying in France.
But Paris is full of dot com entrepreneurs determined to make it there. Hugues Delannoy, 30, studied at Stanford and worked at a software company in Palo Alto, but gave up a raft of stock options to return to France to launch his own e-commerce start-up, assurland.com. Starting a Web venture in France, he says, has its advantages. The country has deep reservoirs of the most prized dot com resource — engineering talent — and that talent is both cheaper and more accessible than it is in Silicon Valley and other parts of Europe. While the number of Internet users in France has swelled to 3 million, the number who spend money online is still minuscule — which makes the field fertile for French e-entrepreneurs. And the prohibitive taxes on stock options don't punish new startups: a more relaxed French measure allows fledgling companies to give employees special options that are taxed at a lower rate than in the U.S (although this temporary arrangement remains to be fully voted into law). "There is this general negative attitude about the French system," Delannoy says. "But you can do whatever you want here, as long as you get your information in the right place."
For that, French entrepreneurs turn to each other. On a recent evening, a group of e-entrepreneurs convened to talk shop at a restaurant in the Sentier district of Paris, flinging business cards around like frisbees and swapping ideas about everything from hiring publicists to getting bank loans.
Vincent Thiollier, 31, the founder of oncook.com, complained that legal restrictions forced him to delay making offers to prospective hires. "It's still a nightmare to work quickly here," he said. But the other entrepreneurs were confident that many of those restrictions will eventually disappear. "This is the first time in this country that there has been such an entrepreneurial wave," said Corentin de Tregomain, 28, founder of galaxidion.com, a rare books site. "At least things are moving. That's the best thing the Internet has given France."
Young French entrepreneurs conduct business in a manner that's improvisational, meritocratic and increasingly global — which is partly to say, less French. Jérôme Frizzera, 28, funded his Internet company Magicmaman.com in 1998 with his unemployment checks; now he has 21 employees and is raising venture capital to expand the site in Europe. "We have started to become more megalomaniacal — we've started thinking globally," he says. "I think it's a good change." But globalization also means that France's most successful new-economy businesses can't sit still. Says Vivendi's Messier: "If you were to ask me whether in five years time we could be a New York- or California-headquartered group, I would say, why not?"
Fi Systems has already made moves: its executives now work in London and the company aims to do half its business outside France by the end of the year. English has become the corporate lingua franca. "We're becoming less and less a French company," says vice president for corporate development Denis Lafont. "We do have a history here. But we are starting a new story with new thinking. And so it will be a good thing not to be in France." A comment like that might not sit well with French nationalists. But look at the flip side: for perhaps the first time in its history France is producing confident young businesses that want to compete — and believe they can win — in the global marketplace. For anyone rooting for a French renaissance, that alone should be cause for celebration.
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June 12, 2000
SPECIAL REPORT
French Connected
Despite a legacy of state control, and an archaic political leadership, France is thriving — and modernizing — in the face of global competition
Venture Playground
A new spirit of entrepreneurship has created a thriving culture for Internet start-ups and fueled the country's robust growth. How the new economy is changing the way the French do business — and reshaping the nation itself
French Exodus
Driven out by excessive taxes and red tape, and also by a spirit of adventure, more and more French men and women are taking their talents abroad
Mixing Bowl
The French don't like to admit it, but decades of immigration have produced a multicultural society that is reinvigorating the nation
Vive Les Regions
Key provincial cities are emerging as the new vectors of economic development and cultural expression
From Decline to Renewal
Stanley Hoffman on France's success as a modern, middle-size power
EUROPE
The Victory Lap?
Europe toasts Clinton one more time, but the Atlantic relationship is showing strain
Soft Power Politics
Europe and the U.S. must seek a world beyond winners and losers
Battle of the Basques
Political inertia combines with disunity and distrust among Spain's national and regional security forces to play into the hands of the terrorist group ETA
Expensive Exposure
Hanover hopes Expo 2000 will put it on the map. It surely will, but the price of publicity will be high
Lights, Camera, Shoot!
Police disguised as a TV crew trick a man to free children and teachers held hostage in Luxembourg
AFRICA
Reliving Apartheid Horrors
The trial of a South African cardiologist accused of murder reopens old wounds
BUSINESS
Ad Land Goes Cyber
Virtual agencies are using the Web to create campaigns in record time, and without the bureaucracy
The Game of the Name
The struggle for Web dominance shows that brands matter just as much in the new economy as in the old
The Wide Blue Yonder
Giant airships could become commercially viable again six decades after the Hindenburg disaster
Battle Below the Belt
Designer Calvin Klein goes to court claiming a business partner is destroying his brand's image
SOCIETY
Tangled Webs for Sale
Planning a tryst or a day at the races away from the boss? A Scottish firm can cover your tracks — for a fee
THE ARTS
Recreating a Jewel
Egypt has built an updated version of the fabled Bibliotheca Alexandrina, but its commitment to intellectual freedom remains an open question
Thandie Makes It Possible
Her mission: to help make M:I-2 the hottest movie of the season. But first she tells you about Hollywood stupidity (and Tom's unusual sense of humor)
The Daily Courage
Journalist Benjamin Pogrund let the facts speak for themselves, no easy task in apartheid South Africa
DEPARTMENTS
Essay
To Our Readers
World Watch
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